The Morning Economic Report

9:29 am

Thu July 10, 2014

Economic Impact of Student Loans - 7/10/14

Most people would agree that large volumes of student debt are holding the economy back. Just a decade ago, there were only about $300 billion in student loans outstanding. Today, that figure is in the range of $1.1 trillion. While that total is dwarfed by total mortgage debt in the U.S., $8.2 trillion, student debt is concentrated among a smaller group of people – many of them in their 20s and 30s. These people often serve as the engine of economic activity, including with respect to the housing market.

Just before the 2008 financial crisis, nearly 1 in 3 Americans aged 27 to 30 possessed debt tied to their home, whether in the form of a mortgage or home equity line of credit. Today, that proportion has plummeted to around 22 percent according to data from the New York Federal Reserve, consistent with declining homeownership among young Americans.

As indicated by a recent article authored by journalist Neil Irwin, higher levels of student debt appear to be a primary explanatory factor. The same is true with auto loans. An individual with student debt today is less likely to own a car than was the case in 2008, when 38 percent of 25 year olds with student loans also had an auto loan. By last year, that proportion slipped to 31 percent.